Sovran Self Storage Inc., a self-storage real estate investment trust, reported operating results for the quarter ended Dec. 31, 2009.

As a result of one-time charges associated with the early repayment of some of its long-term bank notes, the company experienced a $1.5 million loss for the quarter, or $.06 per diluted share. Net income available to common shareholders for the same period in 2008 was $8.4 million, or $.38 per diluted share. Funds from operations for the quarter were $.28 per fully diluted common share.

The one-time charges totaled more than $9 million, or $0.33 per fully diluted share. The company sold 4 million shares of common stock Oct. 5, applying the proceeds of the offering to repay $100 million of its bank-term notes maturing in 2012, and terminated the interest rate-swap agreements associated with the repaid debt obligation.

Primarily as a result of these actions, Fitch Ratings reinstated the company's investment grade credit rating at BBB- (matching the rating issued by Standard and Poor's).

Source:  MarketWatch,  Sovran Self Storage Reports Fourth Quarter 2009 Results; Provides 2010 Earnings Guidance

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The Florida Self Storage Association opened registration for its “New Horizons”  Conference & Expo at Disney’s Contemporary Hotel in Lake Buena Vista, Fla., May 5-7. Several new items have been incorporated into the conference, including a variety of pre-conference activities, educational seminars, roundtables, an expo hall and silent auction benefiting the Special Olympics.

The conference will also feature The Storage Summit panel discussion with Anne Ballard of Universal Management Co., Michael Haugh of Absolute Management, Brenda Scarborough of Accountable Management, Marc Smith of Personal Mini Storage, Steve Wilson of Hide-Away Storage, and keynote speaker Paul Martin.

The FSSA is a non-profit organization comprised of individuals who have an interest in the self-storage industry in Florida. Members include facility owners, operators, developers, investors, managers and suppliers.

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Two vital components of a flourishing self-storage operation are your management team and your marketing program. Solid marketing brings potential customers in the door, while good managers keep them around.

In this last of a three-part series, Inside Self-Storage asked industry marketing and management experts for their insight to today’s market. Our panel discusses the evolving role of the self-storage manager, how to handle concessions, and the basis for creating an effective marketing plan. Our experts are:

• Linnea Appleby, president, PDQ Management Solutions Inc.
• Mel Holsinger, president, Professional Self-Storage Management LLC
• Derek Naylor, president, Storage Marketing Solutions
• Brad North, founder, Advantage Consulting & Management
• Maurice Pogoda, president, Pogoda Cos.

How has the role of the self-storage manager changed over the past year?

Appleby: It has been evolving over the past several years from caretaker/order-taker to sales and marketing expert. But the really big change this year has been the need for the storage manager to be the relationship-builder with the customer as well as operating a top-notch property. More is expected of the front-line staff as customer service becomes a significant and determining factor for the consumer as to where they do business.

In years gone by, the saying was, “If you build it, they will come.” Now it’s, “If they like you, they will rent.” The manager with the better customer-service skills will win the business every time regardless of factors like price and convenience.

Holsinger: A self-storage manager in today’s world needs to have a better understanding about marketing, customer relationships, lien laws, preventive and routine maintenance, pricing strategies, street presentations, and electronic communications such as e-mail, instant messenger, etc. He needs to understand the role and use of the Internet and electronic banking functions. He needs to have an understanding of accounting and bookkeeping procedures. In general, he needs to be better educated with a minimum of a high school degree if not a college degree.

Pogoda:The manager has always been critical to the success of a store. This has proven to be even truer over the past year. In these tough times, the number of prospective tenants has dropped dramatically. Therefore, being able to “sell” the store and making a rental every time the phone rings or someone comes into the office has become vital.

Getting the right person in place is imperative, and providing him with extensive training and support is essential. Plus, celebrating “victories,” no matter how small, such as achieving a weekly sundry sales goal, keeps managers motivated.

Being part of the community is more important than ever. Outside marketing through personal contacts is an excellent source for prospective tenants. That means the store manager must be involved in the community and making contacts with anyone and everyone who might be a referral source.

Dealing with delinquent tenants has become a bigger part of a manager’s job. Making collection calls has always been important, but the sheer number of past-due accounts has made this more time-consuming. To some extent, it’s taking a toll on managers, as they are regularly the target of a delinquent tenant’s anger resulting from circumstances beyond the tenant’s control, such as a job loss. In addition, managers have had to become more creative in their efforts to either get tenants to pay or vacate. Empowering managers with decision-making authority within preset parameters is important. 

Concessions are huge right now. How can managers offer them without ‘giving away the farm’?

Appleby: The better the manager is at “selling,” the lower the concessions. The market determines what the average concessions are and, just as with pricing, should determine where the facility falls in the concessions game. If your concessions are higher than others in your market area, it’s due to management who doesn’t know how to properly sell. These are the folks that go immediately to their lowest offer without negotiating first. Managers should have a toolbox of items they can use to close the deal.

Holsinger: Managers really need to look at the demand for specific sizes, competitors’ pricing and occupancies, and the length of stay. They need to understand that the ultimate goal is to get the customer renting at the highest possible price or opportunity. Giving concessions of time vs. money can lessen the blow, so to speak, but each case needs to be evaluated independently.

For example, having the customer walk out and rent from someone else over a couple of dollars doesn’t make sense. Having him rent at a discounted price for a short period of time may help your cash-flow position in the short term, but not necessarily the long term.

Pogoda:Concessions can be difficult to control. We want our stores to be competitive in their markets but, at the same time, continue to generate enough income to pay the bills. We try to put a time limit on concessions. For example, we may reduce the rent on a space for a specific time and let the tenant know it will go to street rate at the end of the “special” period. We have also had success using a “Pay for X months, get the X month free” type of promotion.

In addition, we emphasize our discounts for prepaying rent. Again, this is an area where a manager needs to be empowered to make an on-the-spot decision to get the rental. Training and clearly defined authority boundaries are the keys to trusting managers to make good decisions.

What’s in the future for the self-storage manager?

Appleby: Learning what drives the business and being involved in the activities that promote success will be the difference between a good manager and a great manager. Managers need to understand not only the numbers that are important to the business like gross potential, closing ratios, etc., but how their actions or inactions affect those numbers. When they take an active rather than passive approach to the results of the facility, they will increase their personal value to the company.

Holsinger: More community involvement, professionalism, more and intense training, self-starting roles in the daily business, and more necessity for understanding the total business package—from sales and marketing to maintenance and accounting. In summary, managers need an even greater emphasis on their specific role for the success of a facility.

Pogoda:The self-storage manager will always be integral to a store. The personal contact they provide is something that sets our industry apart from many others. In large part, our business relies on the trust of our tenants who are leaving their belongings at our store. The manager is the face of our business, which is something that’s becoming less common in our technologically advancing world.

However, managers will need to become true professionals. They’ll need to be well-trained self-storage experts so they can provide tenants with the level of knowledge and sophistication they’re coming to expect.

What role does marketing play, and what’s the manager’s responsibility?

Appleby: Marketing is a huge part of the manager’s job. Self-storage is an extension of the tenant’s home or business, so the manager should be a very visible and an active part of the community and neighborhood. Creating relationships and reputation is a way to differentiate yourself in the market. Getting out, meeting people and making friends is key.

Holsinger: Marketing is the total package. The way the manager dresses and greets a customer on the telephone or in person is critical. The way the facility is presented to a prospective customer is important. Benefits such as wide aisles, good lighting, security features, the office smell and feel, the display of ancillary products, etc., all contribute. The advertising is just a way to entice a person to contact the store; the marketing is how you make the store sell itself.

Pogoda:In the current environment, marketing is one of the most important roles of the manager by getting the store’s name out into the community through personal contacts. By nature, human beings are willing to help each other out. If a person knows Paula, our store manager, through some type of community involvement, he is more likely to make a referral to her rather than to some stranger.

On a company-wide basis, we have placed an emphasis on getting stores more involved in worthwhile and creative community activities. For example, we are involved in the “Cell Phones for Soldiers” program, which collects used cell phones and provides new ones to members of the military serving on overseas assignments.  At one of our stores, we partnered with Hospice of Michigan and used the side of the storage building as a movie screen for a benefit they sponsored. 

Should marketing be a self-storage operator’s No. 1 goal? Why?

Naylor: Being as profitable as possible should be an operator’s No. 1 goal. The best way to do that is lowering expenses and increasing revenue. Marketing plays a critical role in the “increasing revenue” part of that equation, so it should be a priority rather than goal.

In today’s economy and competitive environment, operators must differentiate themselves from the competition and find effective and efficient customer-acquisition systems, then leverage the customer relationship for maximum revenue, and do it all for the least amount of money and time. An effective marketing plan does all three. Far too many operators still have marketing classified as an “optional expense” and not a mandatory activity for their staff. For operators to thrive now and in the future, this must change for them.

North: The No. 1 goal of a self-storage operator is to maximize his sales program. Become the best at building value and trust through an effective sales presentation. In addition, become very good at lead generation through prospecting and creating customer visits to the store.

Once this is accomplished, a self-storage operator can spend more money on marketing and maximize the return on marketing dollars spent.  I’ve seen too many operators “throw away” money on marketing because they were not equipped to handle the calls when they came into the store. In summary, spend the time, money and energy on maximizing sales so you can maximize your return on marketing dollars. 

What constitutes a good marketing plan?

Naylor: A good marketing plan should focus on three objectives: increasing occupancy, increasing tenant value to the facility, and improving marketing efficiency. It should also be based on results and flexible. It will clearly outline specific activities to accomplish those three objectives, with deadlines.

The plan should provide strict guidelines for logo usage, copy creation and offers so your marketing has a consistent and recognizable look and feel. The plan should also discuss how the marketing is going to be tracked for effectiveness and what constitutes “effective” so that quick, smart decisions can be made throughout the year.

North: A good marketing plan must be comprehensive and focused on the target markets that produce the best results. It must be a combination of building relationships in the community, customer referral, key influencer referrals, search-engine marketing, social networking, Yellow Pages ads, and niche marketing specific to the local community. The marketing plan must be implemented on a consistent basis with tracking and measuring to make ongoing improvements. 

What role will online marketing play moving forward?

Naylor: As consumers’ comfort and use of the Internet continues to grow, online marketing will become an important part of every operator’s marketing plan. With the wild explosion in social media, and a sure explosion in “the next big thing,” operators will be well-suited to pay close attention to the Internet and embrace change as it presents itself.

However, I caution everyone to put emotion and excitement aside as new things come out and avoid falling in love with something because it’s “cool” rather than because it makes good business sense to participate.  The Internet will always play these two roles for operators—attract new customers and allow existing customers to maintain their accounts.

North: Online marketing is the wave of the future. Five years ago, we were receiving approximately 3 percent of our rentals from the Internet. Today we range between 10 percent and 20, depending on location. This will only increase over time and will eventually take over Yellow Pages advertising altogether. 

What are the top three marketing tactics every facility should be practicing today?

Naylor: Internet marketing, database marketing, and community-network creation and maintenance.

North: Every self-storage operation must have an effective search-engine marketing program. Second, there must be a comprehensive program to target key influencers in the area surrounding the facility.

These key influencers can be real estate agents, chambers of commerce, business-networking organizations, apartment communities, housing communities, etc. Lastly, there must be a program to reach out to the community and become a credible organization that helps others. Through helping others you will become known throughout the community and improve your business.

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Police in Anne Arundel County, Md., have arrested three men they believe to be responsible for breaking into 259 self-storage units throughout Anne Arundel and Howard Counties in December and January.
 
Approximately 150 units were compromised between Extra Storage in Millersville and Public Storage facilities in Gambrills and Glen Burnie. Another 114 units were broken into at Public Storage in Elkridge.
 
Burglary and theft charges were filed against Frank C. Lamb, 21, William C. Pierce, 29, and Justin Kiser, 30, in Anne Arundel County. Howard County Police have not yet filed charges. Investigations are still under way.
 
Since receiving a tip from an informant last month, police have recovered some clothing, collectibles and other items. Investigators are going through goods seized at two homes connected with the suspects and a storage unit rented by one of the arrested men.
 
Source: The Baltimore Sun, Arundel police arrest three in thefts at storage units

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Investment Real Estate Management (IREM), a third-party management company specializing in self-storage properties, announced fourth-quarter and year-end 2009 operating results for the portfolio of facilities it manages.
 
Same-store revenue grew 1.8 percent and net operating income grew 1.7 percent in 2009 compared to 2008. Property operating expenses increased 2.1 percent. Though the year began with negative occupancy growth, occupancy reached 2008 levels by August. At the end of December, same-store occupancy was 3.4 percent higher than it was at the end of 2008.
 
During the fourth quarter of 2009, revenue grew 1.8 percent and NOI grew 3.4 percent compared to the same quarter of 2008. Expenses decreased by 0.7 percent.
 
IREM currently operates 45 self-storage facilities in the mid-Atlantic and northeast states, and offers consulting services to owners and operators nationwide.

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Three veterans of the self-storage industry have formed Storage Business Owners Alliance LLC (SBOA), an organization that enables small to mid-size self-storage operators to take advantage of enhanced buying power. By leveraging the combined strength of numbers, SBOA members can take advantage of savings on expense items such as office supplies, credit card processing fees, payroll processing, and retail product for resale.

SBOA was founded by Morgan Hanlon, Ian Burnstein and David Levenfeld, owners and operators of multiple self-storage facilities. The organization already boasts more than 200 member facilities, including Sentry Self Storage, Planet Self Storage and the facilities managed by Investment Real Estate Management LLC. Enrollment is open to any self-storage facility owner or operator. 

SBOA has established vendor relationships with prominent industry brands such as SiteLink (SMD Software), StorageClicks, Janus International and Michaels Wilder. Members also get significant discounts from nationally known merchants such as Staples, ADP, Sprint and Federal Express.

Although SBOA’s major focus is expense-savings, other revenue-generating benefits include a cooperative program with the U-Store-It Network and a pay-with-rent insurance program with Minico Inc. Future offerings will include savings on property/liability insurance annual premiums.

The company's newly launched website at TheSBOA.com allows members to join and sign up for specific vendor savings.

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Self-Storage Talk: Cutting Costs to Improve Efficiency, Value and Bottom Line

As our nation begins to emerge from the economic downturn, self-storage owners should consider some of the tax advantages that can be realized using cost segregation, and the recent changes to regulations that allow net operating losses to be carried for up to five years.

Under the new regulations, if you’ve paid taxes over the last few years and are now operating at a net loss, you can apply last year’s losses back five years. You may also want to consider using cost segregation to increase net operating loss and gain the tax benefit.

This, in turn, may free up some capital to take advantage of what every real estate investor sees as the second coming of the Resolution Trust Corp. of the late 1980s and early 1990s.
Traditional, straight-line 39-year depreciation has generally been the norm for self-storage owners. But over the last few years, many owners have considered cost segregation and accounting modification to free up the capital necessary to take advantage of the real estate investment climate.

The following questions will help you determine if your property is a good candidate to benefit from a cost-segregation analysis. If your answer is “yes” to these, you may be able to apply cost segregation to your facility.  

• Is your facility worth more than $1 million, excluding the land?
• Do you plan on holding on to the facility for the next few years?
• Have you purchased or built your facility in the last 15 years?
• Do you have taxable income?

What Is Cost Segregation?

Cost segregation is an analysis performed by an engineer to determine if various facets of your buildings can be reclassified into five-, seven- or 15-year depreciation schedules. The goal is to increase the depreciation amount in the initial years of your investment and decrease your tax bill. But remember: Only the improvements can be depreciated, not the land.

Components such as asphalt paving, sidewalks, curbing, fencing, security lighting and underground utilities have specifically been identified by the IRS as improvements with a 15-year depreciation schedule. Other components such as security gates, certain types of flooring and alarm systems can be reclassified into a five- to seven-year deprecation period.

This increase in depreciation essentially defers your taxes due and, therefore, has the same effect as borrowing money from the U.S. government with no interest. Furthermore, if your accountant has been depreciating your facility using straight-line 39-year depreciation, you can file IRS Form 3115, “Change of Accounting,” and catch up this year on all the accelerated depreciation since you purchased or built your facility.
 
How Do I Begin?

The IRS requires that an engineering-based study be conducted by a qualified professional to reclassify such components of your facility. For self-storage, these studies typically cost between $4,000 and $7,000. Most reputable companies will provide you with a no-cost estimate of your potential tax savings before conducting the study.

A successful and reliable cost-segregation study will require a detailed analysis of direct and indirect construction costs, a review of construction drawings (if available), an inspection and observation of components, expertise in specific mechanical and electrical systems, detailed documentation, and an extensive knowledge of the tax code as it pertains to cost segregation, among other things. It’s important that the study is done correctly and by a reputable firm in case the IRS has questions.

The accompanying chart provides an example of how cost segregation can be applied and the possible tax savings you might anticipate if your situation is similar. Self-storage owners should discuss this with their accountant and legal counsel before applying cost segregation to their depreciation schedules.  

The owner represented in the chart will receive an estimated $492,167 in additional accumulated depreciation expenses in year one. This will lead to an additional $177,180 in deferred tax payments, which the owner can use interest-free until the property is sold and the depreciation is recaptured.

With the new and more stringent underwriting criteria being applied by all financial institutions today, and assuming a 70 percent loan-to-value, this additional capital would allow him to borrow an extra $420,000 to take advantage of buying opportunities in the market. 
 
Moving Forward

To describe the self-storage real estate market as challenging is an understatement. Unless you’ve been in the real estate business for at least 25 years, these are uncharted waters, and even seasoned professionals who’ve been through a few cycles don’t see these times any easier.

The gap between the bid and the ask seems to be getting smaller, but we all need to realize that we’re playing by different rules, and these new rules will most likely be the blueprint for self-storage investing for many years to come.

Cost segregation is one way self-storage owners can benefit from the government, which is doing its part to help maximize the benefit of real estate investing. These changes have made cost-segregation studies more beneficial through increased tax deferment and the ability to carry net operating losses for up to five years.

As many industry professionals over the last year have indicated, self-storage continues to outperform other real estate asset classes. However, the banks and financial institutions are still reluctant to make loans to storage owners because they fall under the general real estate loan umbrella, which has some harsh critics.

Hopefully, this article will give you ideas on alterative ways to borrow money from Uncle Sam, as Goldman Sachs and other financial institutions have done through government bailouts.
 
Ben Vestal is the executive vice president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail [email protected].

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A fire on Sunday at Viking Self-Storage in West Terre Haute, Ind., was deliberately set to cover up a burglary, fire investigators said.

The fire destroyed 34 units. The blaze was contained to only a few units in the east end of the north storage unit building when firefighters arrived around 3:44 a.m., but spread quickly. Firefighters had to force entry through every unit door. The 36 units in the south building were not damaged.

While investigating the cause of the blaze, firefighters discovered several units were missing locks. Some units also had missing items. The facility owner said he plans to rebuild.

Source:  Tribune-Star,  Arson Declared Cause of Fire at Viking Self-Storage

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Humboldt Storage and Moving of Boston will sponsor broadcasts of Boston Bruins games on The Sports Hub, 98.5 FM radio. The facility will also sponsor several contests and in-game and on-air promotions, such as "Move Around the NHL," a pre-game segment that previews all of the games happening on a particular night. An in-game segment will also be part of the promotion, providing scoreboard updates for other NHL games. Humboldt will also sponsor Sports Hub headlines from 2 p.m. to 7 p.m. 
 
The focal point of the Bruins' relationship with Humboldt will be a contest called the Ultimate Stress-free Sports Day Contest. The winners (two Bruins fans) will receive VIP parking for a game, dinner and a VIP tour. The winners will also meet Sports Hub broadcasters Dave Goucher and Bob Beers. 
 
In addition to providing climate-controlled self-storage, Humboldt specializes in delicate moving projects, such as biotech/lab and hospital moves and fine-art moving. 

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Last week Michigan Gov. Jennifer Granholm proposed that the state sales tax be extended to consumer services such as “self-service storage,” but also that the rate be dropped from 6 percent to 5.5 percent. Though the Self Storage Association of Michigan (SSAM) and the national Self Storage Association (SSA) were able to defeat a similar attempt to tax self-storage in the state two years ago, the debate will be reinvigorated with the proposal of the Governor’s new budget, expected to be complete by July 1.
 
The SSA Legislative and Regulatory Advisory Committee has voted to support SSAM with funding for its fight. The association argues that self-storage is the rental of real property and should not be subject to sales tax.
 
In December, Granholm signed a bill that allowed improvements to the state’s self-storage lien law. Originally introduced to protect military members who had been deployed overseas, the bill includes other changes that are considered a victory for Michigan self-storage operators.
 
The proposed sales tax would not apply to healthcare, social assistance, education, new construction, real estate, insurance commissions, or any services directly connected to business operations. Granholm also wants to cut the 22 percent surcharge on the Michigan Business Tax by 50 percent next year and eliminate it entirely by 2012.
 
The roughly $550 million raised by the Governor’s proposed change would at first go to maintain the current level of spending for public education.
 
Source: CB Online, Michigan governor pitches expanding state sales tax to services, dropping rate to 5.5 percent

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